The Federal Reserve has raised its target interest rate after five years of record lows. This means you may be at risk of paying more interest on your mortgage, private student loans and car note if you’re looking to buy. Here’s a roundup of what this means for you.
1. You could see more return on your savings.
Let’s start with the good news. Your savings account, money market and Certificates of Deposit could start increasing at a higher interest rate. More money in your savings account is great news! But keep in mind that you won’t necessarily see this effect immediately, interest will accrue visibly and compound over time.
2. If you plan on buying a car, your payments could be costly.
If you’re looking to buy or lease a new car, make sure you pay close attention to your interest rate. The higher your interest, the more expensive your car note will be. This is because when you finance a car, you’re borrowing from the dealership or loan vendor. Essentially, they provide you the money you need to purchase your vehicle up front and you pay them back with interest over time. With a higher interest rate, you’ll end up paying more money for your car.
If you are already paying a car note, try not to refinance until interest rates go down. Refinancing is when you replace your current car loan with a new one, on different terms. Before you commit to monthly car payments, make sure purchasing a car is the best option for you. Consider paying cash down for an older car so you won’t be tied to a monthly bill. Other alternatives like public transportation or buying a bike could benefit you as well, especially if you live in a big city.
3. The annual percentage rate on your credit card might go up.
If your account balance is hit with a higher interest rate, it could take you longer to pay off your debt. Try your best to pay your credit card bill in full each month. You don’t want to carry outstanding debt from month to month. If you do, you’ll end up paying more for what you borrowed.
4. Your private student loan payments might increase.
If you have federal student loans, there’s more good news for you. Federal student loans have fixed interest rates. This means your loans will not be affected.
Private loans, however, sometimes have variable interest rates that could increase. If you’re still paying for school, try your best to minimize the amount you borrow through private student loan vendors. This way, future interest rate increases won’t affect your student loans.
5. Your mortgage could increase.
If you have a fixed-rate mortgage, you’re in the clear. However, if you have an adjustable-rate mortgage, it’s very likely that your interest rate will go up. Check with your loan vendor to see if your mortgage payment will increase. You might also want to find out if it’s a good time to refinance your home into a fixed-rate agreement.
In short, it’s best to avoid borrowing money where possible. If you don’t take out loans, you won’t have to worry about fluctuating interest rates.